Hi Danny,
I agree with Maroman and Kelley.... Your key doesn't look good. Clean up the slots, buy a new key, and ensure it fits tightly in the crank slot and the balancer slot, then install it correctly. You have to make sure the key is firmly down in the center of the crankshaft, with it's outer tip *slightly down* from level, to ensure it slides into the balancer slot.. when you are installing the balancer, make sure it's slot slides over the key at the front. Once it engages correctly, it's generally not a problem. Yours seems to have been mangled by improper assembly in the past... but hopefully your crank keyway and balancer keyways are good.. WHen you are cleaning up the slots (for burrs, et), check the crankshaft snout for burrs as well and remove any extending burrs, but you don't want to reduce the circumference of the crankshaft when you do that.
The slightly bulging rubber between the inner and outer balancer rings is not unusual, and is not necessarily a problem; your outer wheels is still aligned so it hasn't moved on the balancer as yet. If the rubber is 'cracking and peeling/falling out', then I'd be more concerned, but yours doesn't look bad to me. The 'hammer marks' on the center of the balancer is also not unusual, as that happens often, but you can avoid that by using a plate (metal, or even a hardwood?) across the front of the balancer -center only - make sure as you are tapping it on, that you don't put any force on the outer wheel. When the balancer bottoms out against the crankshaft, you will hear it clearly, and should stop, and install your crankshaft bolt/washer. Torque to spec. your *might* be able to pull the balancer on using that bolt, but generally tap them into place (using a spacer to spread the load as I stated up there), and then install the bolt.
If you have the overhaul manual, it should have instructions for that checking and reassembly also.
